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CHAPTER 2: ACCOUNTING FOR MATERIALS

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1. An effective cost control system should include:

a. An established plan of objectives and goals to be achieved.

b. Regular reports showing the difference between goals and actual performance.

c. Specific assignment of duties and responsibilities.

d. All of these are correct.

ANSWER: d

RATIONALE: An effective cost control system should include an established plan of goals and objectives, reports comparing budgeted goals to actual performance, and assignment of specific duties and responsibilities to operating personnel.

POINTS: 1

DIFFICULTY: Easy

LEARNING OBJECTIVES: PRIN.EDWA.16.1 - Introduction

ACCREDITING STANDARDS: AACSB Analytic

ACCT.AICPA.FN.03 - Measurement

BUSPROG.03 - Analytic

IMA-Internal Controls

OTHER: Bloom's: Remembering

2. To effectively control materials, a business must maintain:

a. Limited access.

b. Combination of duties.

c. Safety stock.

d. None of these are correct.

ANSWER: a

RATIONALE: To control materials a business must maintain limited access, segregation of duties, and accuracy in recording.

POINTS: 1

DIFFICULTY: Moderate

LEARNING OBJECTIVES: PRIN.EDWA.16.9 - LO1: Recognize the two basic aspects of materials control





TOPICS: Materials Control


3. Janet is the purchasing agent at Frameco Manufacturing. Her duties include vendor selection and ordering materials.

Due to a recent economic downturn and resulting cut backs, Janet has been assigned the additional duty of preparing

receiving reports after comparing the goods received to the purchase order. This is an example of:

a. unlimited access to materials.

b. independence of assigned functions.

c. misappropriation of assets.

d. a lack of segregation of duties.

ANSWER: d

RATIONALE: Because Janet’s job as a purchasing agent involves preparing the purchase orders and she is also comparing items received to the purchase orders, there is a lack of segregation of duties. This increases the potential for the misappropriation of assets, but



there is not enough information given to determine that a misappropriation has indeed occurred.

POINTS: 1

DIFFICULTY: Challenging


ACCREDITING STANDARDS: AACSB Reflective Thinking


BUSPROG.06 - Reflective Thinking



OTHER: Bloom's: Analyzing

4. Marley Company hired a consultant to help improve its operations. The consultant’s report stated that Marley’s

inventory levels are excessive and cited several negative consequences to Marley as a result. Which of the following

consequences was not cited in the report?

a. Possible other uses for working capital now tied up in inventory

b. Production stoppages due to parts not being available

c. Higher property taxes and insurance costs

d. Large quantities of obsolete materials

ANSWER: b

RATIONALE: It is important to maintain inventories of sufficient size and variety to meet production needs. However, if Marley’s inventories are excessive, it is likely that parts are available for production, but the excess inventory is resulting in higher costs related to holding those items such as property taxes and insurance and potential losses from obsolescence or deterioration. Funds invested in inventories could be used for other purposes.

POINTS: 1




ACCT.AICPA.BB.07 - Critical Thinking


IMA-Strategic Planning



5. The data used to calculate the order point include all of the following except:

a. the costs of placing an order.

b. the rate at which the material will be used.

c. the estimated time interval between the placement and receipt of an order.

d. the estimated minimum level of inventory needed to protect against stockouts.

ANSWER: a

RATIONALE: Calculating an order point is based on usage, lead time and safety stock. The cost of placing an order is used in determining the economic order quantity.

POINTS: 1











6. Murphy Company uses 3,000 yards of material each day to make hats. It usually takes five days from the time Murphy

orders the material to when it is received. If Murphy’s desired safety stock is 6,000 yards, what is Murphy’s order point?

a. 6,000 yards

b. 12,000 yards

c. 15,000 yards

d. 21,000 yards

ANSWER: d

RATIONALE: 3,000 (daily usage) x 5 (lead time) 15,000

Safety stock 6,000

Order point 21,000

POINTS: 1








OTHER: Bloom's: Applying

7. What is the objective of the economic order quantity (EOQ) model for inventory?

a. To minimize order costs or carrying costs, whichever are higher

b. To minimize order costs or carrying costs and maximize the rate of inventory turnover

c. To minimize the total order costs and carrying costs over a period of time

d. To order sufficient quantity to economically meet the next period's demand

ANSWER: c

RATIONALE: If the demand for the product can be determined because it is predictable, the essence of any EOQ model for inventory is to minimize the total order costs and also minimize the total carrying costs.

POINTS: 1

DIFFICULTY: Easy








8. Order costs would include all of the following except:



a. Receiving clerk’s wages.

b. Storeroom keeper’s wages.

c. Purchasing department’s telephone bill.

d. Transportation in.

ANSWER: b

RATIONALE: Costs related to the purchase and receipt of materials are considered order costs while costs related to the storage and maintenance of materials are considered storage costs. The storeroom keeper’s wages would be a storage cost.

POINTS: 1








OTHER: Bloom's: Understanding

9. Expected annual usage of a particular raw material is 1,200,000 units, and standard order size is 10,000 units. The

invoice cost of each unit is $145, and the cost to place one purchase order is $105. The estimated annual order cost is:

a. $12,000.

b. $17,400.

c. $12,600.

d. $800,000.

ANSWER: c

RATIONALE: Annual order cost = Number of orders × Per order cost = 1,200,000 units × $105

10,000 units

= 120 orders × $105 = $12,600

POINTS: 1









10. Carrying costs would include all of the following except:

a. Warehouse rent.

b. Inspection employees’ wages.

c. Losses due to obsolescence.

d. Property taxes.

ANSWER: b



RATIONALE: Costs related to the purchase and receipt of materials are considered order costs while costs related to the storage and maintenance of inventory are considered storage costs. Inspection would typically happen upon receipt of goods making this an order cost.

POINTS: 1









11. The following data refer to various annual costs relating to the inventory of a single-product company that requires

10,000 units per year:

Cost per unit

Order cost $.05

Transportation-in on purchases .18

Storage .16

Insurance .10

Total per year

Interest that could have been earned on alternate investment of funds $800

What is the annual carrying cost per unit?

a. $ .21

b. $ .29

c. $ .34

d. $ .44

ANSWER: c

RATIONALE: The carrying costs will consist of the per unit costs for storage, insurance, and interest on the inventory investment.

Carrying costs: Storage $.16

Insurance .10

Interest =

$800 .08

Units required 10,000 Carrying costs $.34

POINTS: 1









12. The following data pertains to Western Company’s materials inventory:



Number of pounds required annually 16,000

Cost of placing an order $20

Annual carrying cost per pound of material $4

What is Western Company’s EOQ?

a. 4,000 pounds

b. 800 pounds

c. 400 pounds

d. 200 pounds

ANSWER: c

RATIONALE: = 400

POINTS: 1









13. Expected annual usage of a particular raw material is 180,000 units, and standard order size is 12,000 units. The

invoice cost of each unit is $300, and the cost to place one purchase order is $80. Assuming the company does not

maintain safety stock, the average inventory is:

a. 10,000 units.

b. 7,500 units.

c. 15,000 units.

d. 6,000 units.

ANSWER: d

RATIONALE: Average inventory = 12,000 (standard-size order)

2 = 6,000 units

POINTS: 1









14. Arwen Company has correctly computed its economic order quantity at 500 units; however, management feels it

would rather order in quantities of 600 units. How should Arwen's total annual order cost and total annual carrying cost

for an order quantity of 600 units compare to the respective amounts for an order quantity of 500 units?

a. Higher total order cost and lower total carrying cost

b. Lower total order cost and higher total carrying cost



c. Higher total order cost and higher total carrying cost

d. Lower total order cost and lower total carrying cost

ANSWER: b

RATIONALE: If orders were placed for 600 units instead of EOQ of 500 units, fewer purchase orders would have to be placed to acquire the total units required for production, thereby reducing the total order cost. However, due to the larger number of units ordered each time, the number of units stored would be greater and a higher total carrying cost would result.

POINTS: 1









15. The personnel involved in the physical control of materials includes all of the following except the:

a. Purchasing agent.

b. Receiving clerk.

c. Cost accountant.

d. Production department supervisor.

ANSWER: c

RATIONALE: The cost accountant has the responsibility for the accounting records pertaining to inventory valuation but not for the physical materials.

POINTS: 1


LEARNING OBJECTIVES: PRIN.EDWA.16.10 - LO2: Specify internal control procedures for materials





TOPICS: Materials Control Procedures


16. The employee who is responsible for preparing purchase requisitions is most likely the:

a. Storeroom keeper.

b. Purchasing agent.

c. Production supervisor.

d. Receiving clerk.

ANSWER: a

RATIONALE: The storeroom keeper is usually the employer responsible for preparing purchase requisitions when the stock is running low to notify the purchasing agent that the inventory needs to be replenished.

POINTS: 1











17. Sam Jones works at Seeker, Inc. Sam’s duties include identifying where materials can be obtained most

economically, placing orders and verifying invoices and approving them for payment. Sam is a(n):

a. receiving clerk.

b. accounts payable clerk.

c. purchasing agent.

d. production supervisor.

ANSWER: c

RATIONALE: The duties described are those of a purchasing agent. The receiving clerk counts and identifies materials received and prepares a receiving report. The accounts payable clerk is responsible for issuing payment to vendors. The production supervisor is responsible for preparing materials requisitions for materials needed for production.

POINTS: 1






IMA-Cost Management



18. The form used to notify the purchasing agent that additional materials are needed is known as a:

a. Purchase order.

b. Vendor's invoice.

c. Receiving report.

d. Purchase requisition.

ANSWER: d

RATIONALE: The storeroom keeper prepares a purchase requisition to notify the purchasing agent that additional materials are needed.

POINTS: 1

DIFFICULTY: Easy





IMA-Cost Management





19. The form prepared by the purchasing agent and sent to the vendor to obtain materials is known as a:

a. Materials requisition.

b. Purchase requisition.

c. Purchase order.

d. Vendor's invoice.

ANSWER: c

RATIONALE: The purchase order is prepared by the purchasing agent and sent to the vendor to order materials.

POINTS: 1

DIFFICULTY: Easy





IMA-Cost Management



20. A receiving report would include all of the following information except:

a. What the shipment contained.

b. The purchase order number.

c. The customer.

d. The date the materials were received.

ANSWER: c

RATIONALE: It is unlikely the receiving report would contain the customer name; however, a listing of what the shipment contained, the purchase order number and the date of the receipt would be necessary information used in matching the receiving report to the vendor’s invoice and the purchase order.

POINTS: 1






IMA-Cost Management



21. Listed below are steps of purchasing and receiving materials:

1. The receiving clerk prepares a receiving report.

2. Purchase requisitions are prepared to notify the purchasing agent that additional materials are needed.

3. The purchase of merchandise is recorded by the accounting department.

4. The purchasing agent completes a purchase order.

In which order would these events typically happen?

a. 4, 2, 3, 1



b. 2, 4, 3, 1

c. 2, 4, 1, 3

d. 4, 2, 1, 3

ANSWER: c

RATIONALE: The storeroom keeper will prepare a purchase requisition to notify the purchasing agent that additional materials are needed. The purchasing agent will then complete a purchase order and send it to the vendor. When the goods are received, the receiving clerk will prepare a receiving report which is compared to the vendor’s invoice and the purchase order. At that time, the accounting department will record the purchase of the inventory items in the general ledger.

POINTS: 1






IMA-Cost Management



22. Listed below are steps of procuring materials for production:

1. The receiving clerk checks the quantity and quality of incoming materials.

2. The purchasing agent issue the purchase order to the vendor.

3. The production floor supervisor issues a materials requisition.

4. The storeroom clerk issues a purchase requisition.

In which order would these events typically happen?

a. 3, 2, 4, 1

b. 3, 4, 2, 1

c. 2, 1, 3, 4

d. 4, 2, 1, 3

ANSWER: d

RATIONALE: The storeroom keeper will prepare a purchase requisition to notify the purchasing agent that additional materials are needed. The purchasing agent will then complete a purchase order and send it to the vendor. When the goods are received, the receiving clerk will prepare a receiving report which is compared to the vendor’s invoice and the purchase order. The production floor supervisor will issue a materials requisition to obtain inventory from the storeroom.

POINTS: 1






IMA-Cost Management





23. The duties of the purchasing agent would include all of the following except:

a. Placing purchase orders.

b. Counting and identifying materials received.

c. Compiling information that identifies vendors and prices.

d. Verifying invoices and approving them for payment.

ANSWER: b

RATIONALE: The receiving clerk is responsible for counting and identifying the materials received.

POINTS: 1






IMA-Cost Management



24. The form that serves as authorization to withdraw materials from the storeroom is known as the:

a. Materials requisition.

b. Purchase order.

c. Purchase requisition.

d. Returned materials report.

ANSWER: a

RATIONALE: The materials requisition is prepared by the production department supervisor or an assistant and is presented to the storeroom keeper as authorization for the withdrawal of materials.

POINTS: 1

DIFFICULTY: Easy








25. If a company receives a larger quantity of goods than had been ordered and keeps the excess for future use,

a(n)______________ is prepared to notify the vendor of the amount of increase to accounts payable in the invoice.

a. credit memorandum

b. return shipping order

c. debit memorandum

d. additional purchase order

ANSWER: a

RATIONALE: A Debit or credit memorandum may be issued when the shipment of materials does not match the purchase order and the invoice. In this case, since more materials than ordered and billed were received, the company would issue a credit memorandum to increase accounts payable.



POINTS: 1






IMA-Cost Management



26. The Egbert Company uses an industrial chemical, XRG, in a manufacturing process. Information as to balances on

hand, purchases, and requisitions of XRG is given in the following table.

Date Transaction

Number of

Kilograms

Price per

Kilogram

Balance of

Kilograms

Jan. 1 Beginning balance 1,000 $2.10 1,000

Jan. 24 Purchased 2,500 $2.25 3,500

Feb. 8 Issued 700 2,800

Mar. 16 Issued 1,200 1,600

Jun. 11 Purchased 1,500 $2.75 3,100

Aug. 18 Issued 800 2,300

Sep. 6 Issued 1,600 700

Oct. 15 Purchased 2,000 $2.80 2,700

Dec. 29 Issued 600 2,100

If a perpetual inventory record of XRG is maintained on a FIFO basis, the March 16 issue will consist of:

a. 300 kilograms @ $2.10 and 900 kilograms @ $2.25.

b. 1,000 kilograms @ $2.10 and 200 kilograms @ $2.25.

c. 1,200 kilograms @ $2.25.

d. 700 kilograms @ $2.10 and 500 kilograms @ $2.25.

ANSWER: a

RATIONALE: On a FIFO basis, 300 of the kilograms issued on March 16 would have been assigned a cost of $2.00, and the remaining 900 kilograms issued on that date would have been assigned a cost of $2.25, as follows:

Number of Kilograms

Price perKilogram

Kilograms issued on

February 8

Kilograms issued on March 16

Beginning Balance

1,000 $2.00 700 300

Jan. 24 Purchase 2,500 $2.25 900

POINTS: 1


LEARNING OBJECTIVES: PRIN.EDWA.16.11 - LO3: Account for materials and relate materials accounting to the

general ledger




IMA-Cost Management

TOPICS: Accounting for Materials




27. The Beaches Company uses metal grates when assembling appliances. Information as to balances on hand, purchases,

and requisitions of the grates is given in the following table.

Date Transaction

Number of

Units

Unit Price

Balance of

Units

Jan. 1 Beginning balance 150 $2.80 150

Jan. 24 Purchased 450 $3.10 600

Feb. 8 Issued 120 480

Mar. 16 Issued 210 270

Jun. 11 Purchased 225 $3.34 495

Aug. 18 Issued 195 300

Sep. 6 Issued 165 135

Oct. 15 Purchased 225 $3.40 360

Dec. 29 Issued 210 150

If a perpetual inventory record of the metal grates is maintained on a FIFO basis, the September 6 issue will consist of:

a. 15 units @ $2.80, 120 units @ $3.10 and 30 units @ $3.34.

b. 75 units @ $2.80 and 90 units @ $3.10.

c. 165 units @ $3.10.

d. 75 units @ $3.10 and 90 units @ $3.34.

ANSWER: d

RATIONALE: On a FIFO basis, 75 of the grates issued on September 6 would have been assigned a cost of $3.10 per unit and the remaining 90 grates issued on that date would have been assigned a cost of $3.24 per unit as follows:

Number of

Units

Unit Price

Units issued on

Feb. 8

Units issued on Mar. 16

Units issued

on Aug. 18

Units issued

on Sep.6

Beginning Balance

150 $2.80 120 30

Jan. 24 Purchase

450 $3.10 180 195 75

Jun. 11 Purchase

225 $3.24 90

POINTS: 1



general ledger




IMA-Cost Management



28. The Bisset Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand,

purchases, and requisitions of Raw Material A is given in the following table.



Raw Material A

Date

Transaction

Number of

Units

Unit Price

Balance of

Units


Jan. 24 Purchased 300 $1.55 400



Jun. 11 Purchased 150 $1.62 330



Oct. 15 Purchased 150 $1.70 240


If a perpetual inventory record of Raw Material A is maintained on a FIFO basis, 200 units on hand on August 18 will

consist of:


b. 100 units @ $1.55 and 100 units @ $1.62.

c. 150 units @ $1.62 and 50 units @ $1.55.

d. 200 units @ $1.55.

ANSWER: c

RATIONALE: On a FIFO basis, 50 of the units on hand at August 18 would have been assigned a cost of $1.55 per unit and the remaining 150 units on hand at that date would have been assigned a cost of $1.62 per unit as follows:

Number of

Units

Unit Price

Units issued on

Feb. 8

Units issued on Mar.

16

Units issued on Aug.

18

Units in Inventory on Aug.18

Beginning Balance

100 $1.40 80 20 --

Jan. 24 Purchase

300 $1.55 120 130 50

Jun. 11 Purchase

150 $1.62 150

POINTS: 1



general ledger




IMA-Cost Management



29. The Benchley Company uses metal grates when assembling appliances. Information as to balances on hand,

purchases, and requisitions of the grates is given in the following table.

Transaction

Number of

Unit Price

Balance of



Date Units Units


Jan. 24 Purchased 450 $3.10 600



Jun. 11 Purchased 225 $3.24 495



Oct. 15 Purchased 225 $3.50 360


If a perpetual inventory record of the metal grates is maintained on a FIFO basis, what costs are assigned to the 150 units

in ending inventory?

a. 150 units @ $3.50

b. 15 units @ $3.50 and 135 units @ $3.24.

c. 150 units @ $2.80.

d. 15 units @ $3.50 and 135 units @ $2.80.

ANSWER: a

RATIONALE: On a FIFO basis, the ending inventory consists of the most recently purchased items.

POINTS: 1



general ledger




IMA-Cost Management



30. The inventory method which results in the prices paid for earliest purchases assigned to cost of goods sold is:

a. First-in, first-out.

b. Last-in, first-out.

c. Last-in, last-out.

d. Moving average.

ANSWER: a

RATIONALE: First-in, first-out (FIFO) results in the oldest costs being assigned to cost of goods sold.

POINTS: 1



general ledger




IMA-Cost Management





31. The inventory method which results in the most recent costs being assigned to inventory on hand at the end of the

period is:




d. Moving average.

ANSWER: a

RATIONALE: First-in, first-out (FIFO) results in the most recent costs being assigned to ending inventory because the oldest costs are assigned to issues first.

POINTS: 1



general ledger




IMA-Cost Management



32. Filmac, Inc. uses speakers when assembling computers. Information as to balances on hand, purchases, and

requisitions of speakers is given in the following table.

Date Transaction

Number of

Units

Unit Price

Balance of

Units


Jan. 15 Purchased 100 $16.00 300



Jun. 23 Purchased 100 $17.00 280



Oct. 7 Purchased 100 $19.00 270


If a perpetual inventory record of speakers is maintained on a LIFO basis, the March 8 issue will consist of:

a. 20 units @ $15.00 and 50 units @ $16.00.

b. 70 units @ $15.00.

c. 50 units @ $16.00 and 20 units @ $15.00.

d. 70 units @ $16.00.

ANSWER: c

RATIONALE: On a LIFO basis, 50 units issued on March 8 would have been assigned a cost of $16.00, and 20 units would have been assigned a cost of $14.00 as follows:

Number of

Units Unit Price

Units issued on February

24

Units issued on March 8

Beginning Balance 200 $14.00 20

Jan. 15 Purchase 100 $16.00 50 50

POINTS: 1





general ledger


ACCT.AICPA.FN.04 - Reporting


IMA-Cost Management



33. The Bisset Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand,


Raw Material A

Date

Transaction

Number of

Units

Unit Price

Balance of

Units


Jan. 24 Purchased 300 $1.55 400



Jun. 11 Purchased 150 $1.62 330



Oct. 15 Purchased 150 $1.70 240


If a perpetual inventory record of Raw Material A is maintained on a LIFO basis, the September 6 issue will consist of:


b. 110 units @ $1.55.

c. 50 units @1.55 and 60 units @ 1.62.

d. 20 units @ $1.62 and 90 units @ $1.55.

ANSWER: a

RATIONALE: On a LIFO basis, 20 of the units issued on September 6 would have been assigned a cost of $1.62 per unit, 80 of the units issued would have been assigned a cost of $1.55 per unit and the remaining 10 units issued on that date would have been assigned a cost of $1.40 per unit.

Number of

Units

Unit Price

Units issued on

Feb. 8

Units issued on Mar. 16

Units issued

on Aug. 18

Units issued

on Sep.6

Beginning Balance

100 $1.40 10

Jan. 24 Purchase

300 $1.55 80 140 80

Jun. 11 Purchase

150 $1.62 130 20

POINTS: 1





general ledger




IMA-Cost Management



34. Wiggins, Inc. uses sulfuric acid in a manufacturing process. Information as to balances on hand, purchases, and

requisitions of acid is given in the following table.

Date Transaction

Number of

Gallons

Price per

Gallon

Balance of

Gallons

Jan. 1 Beginning balance 10,000 $.60 10,000

Feb. 24 Purchased 30,000 $.65 40,000

Mar. 8 Issued 8,000 32,000

Apr. 16 Issued 14,000 18,000

May. 11 Purchased 15,000 $.72 33,000

Jul. 18 Issued 13,000 20,000

Oct. 6 Issued 11,000 9,000

Nov. 15 Purchased 15,000 $.78 24,000

Nov. 29 Issued 14,000 10,000

If a perpetual inventory record of Raw Material A is maintained on a LIFO basis, the 20,000 units in inventory at July 18

will consist of:

a. 5,000 units @ $.72 and 15,000 units @ $.65.

b. 10,000 units @ $.60 and 10,000 units @ $.65.

c. 2,000 units @ $.72, 8,000 units @ $.65 and 10,000 units @ $.60.

d. 10,000 units @ $.50, 6,000 units @ $.65 and 4,000 units @ $.72.

ANSWER: c

RATIONALE: On a LIFO basis, 2,000 of the gallons in inventory at July 18 would have been assigned cost per unit of $.72, 8,000 of the units on hand would have been assigned a cost per unit of $.65 and the remaining 10,000 units in inventory on that date would have been assigned a unit cost of $.50 as follows:

Number

of Gallons

Price per Gallon

Units issued on

Mar. 8

Units issued on Apr. 16

Units issued on Jul.

18

Units in Inventory

Jul. 18

Beginning Balance

10,000 $.50 10,000

Feb. 24 Purchase

30,000 $.65 8,000 14,000 8,000

May 11 Purchase

15,000 $.72 13,000 2,000

POINTS: 1



general ledger






IMA-Cost Management



35. The inventory method which results in the most recent cost being assigned to cost of goods sold is:




d. Moving average.

ANSWER: b

RATIONALE: Last-in, first-out (LIFO) results in the most recent costs being assigned to cost of goods sold.

POINTS: 1



general ledger




IMA-Cost Management



36. The inventory method which results in the prices paid for the earliest purchases being assigned to inventory on hand at

the end of the period is:




d. Moving average.

ANSWER: b

RATIONALE: Last-in, first-out (LIFO) results in the oldest costs being assigned to ending inventory because the most recent costs are assigned to issues first.

POINTS: 1



general ledger




IMA-Cost Management



37. The Jordan Corporation uses Raw Material A in a manufacturing process. Information as to balances on hand,




Raw Material A

Date Transaction

Number of

Units

Unit Price

Balance of

Units


Jan. 24 Purchased 300 $1.55 400



Jun. 11 Purchased 150 $1.62 330



Oct. 15 Purchased 150 $1.70 240


If a perpetual inventory record of Raw Material A is maintained on a moving average basis, the 140 units issued on March

16 will have a unit cost of (round to 3 decimal places):

a. $1.525.

b. $1.475.

c. $1.50.

d. $1.438.

ANSWER: a

RATIONALE: On a moving average basis, the 140 units issued on March 16 would have a unit cost of

$1.5125 as follows:

Number of

Units Unit Price Total Cost

Beginning Balance 100 $1.45 $145.00

Jan. 24 Purchase 300 $1.55 465.00

400 $610.00

Average cost for both the February 8 and March 16 issue would be $1.525 ($610 / 400

units).

POINTS: 1



general ledger




IMA-Cost Management



38. The Kennedy Company uses throttles in its assembly of lawn mowers. Information as to balances on hand, purchases,

and requisitions of throttles is given in the following table.

Date

Transaction

Number of

Units

Unit Price

Balance of

Units


Jan. 20 Purchased 150 $3.00 200





Jun. 14 Purchased 75 $4.00 165



Oct. 7 Purchased 75 $4.50 120


If a perpetual inventory record of throttles is maintained on a moving average basis, the 165 items in inventory on June 14

will have a unit cost of (rounded to three decimal places):

a. $3.438.

b. $3.167.

c. $3.386.

d. $2.875.

ANSWER: c

RATIONALE: On a moving average basis, the 165 units in inventory on June 14 would be assigned a

cost per unit of $3.386 as follows:

Number of

Units Unit Price Total Cost

Beginning Balance 50 $2.50 $125.00

Jan. 20 Purchase 150 $3.00 450.00

200 $575.00 (575.00/200 = 2.875)

Feb. 3 Issue 40 $2.875 115.00

Mar. 25 Issue 70 $2.875 201.25

90 258.75

Jun. 14 Purchase 75 $4.00 300.00

165 $558.75

Average cost per unit for the June 14 inventory would be $3.386 ($558.75 / 165 units).

POINTS: 1



general ledger




IMA-Cost Management



39. In a period of rising prices, the use of which of the following cost flow methods would result in the highest tax

liability?

a. LIFO

b. FIFO

c. Weighted average cost

d. Moving average cost

ANSWER: b

RATIONALE: Under the FIFO method, the least recent purchases, which were the least expensive,

would be considered to be the goods sold. This would result in lower cost of goods sold,

thus higher gross margins which in turn would result in higher income taxes.

POINTS: 1





general ledger




IMA-Cost Management



40. In a period of rising prices, the use of which of the following cost flow methods would result in the highest cost of

goods sold?

a. LIFO

b. FIFO

c. Weighted average cost

d. Moving average cost

ANSWER: a

RATIONALE: Under the LIFO method, the most recent purchases, which were the most expensive,

would be considered to be the goods sold. Thus, cost of goods sold would be higher.

POINTS: 1



general ledger




IMA-Cost Management



41. When selecting a method of inventory costing, a company must consider all of the following except:

a. federal and state income tax regulations.

b. current economic conditions.

c. the flow of materials.

d. its rate of inventory turnover.

ANSWER: c

RATIONALE: The flow of materials does not dictate the flow of costs. Companies must consider tax regulations and current economic conditions, including the rate of inflation, particularly as they relate to LIFO. In addition, companies that turn over inventory rapidly may not be as concerned as companies that hold inventory for longer periods of time as the impact of rising prices will not be as dramatic.

POINTS: 1



general ledger






IMA-Cost Management



42. At the end of the period, the balance in the Materials account should represent

a. the cost of materials purchased.

b. the cost of materials on hand, not yet put into production.

c. the cost of materials issued into production.

d. the cost of materials included in Work in Process and Finished Goods.

ANSWER: b

RATIONALE: At the end of the period, the balance in the Materials account should represent the cost of materials on hand. Materials purchased increase the Materials account while materials that have been issued into production, which would be included in Work in Process, Finished Goods and Cost of Goods Sold, would have decreased the Materials account.

POINTS: 1



general ledger




IMA-Cost Management



43. The general ledger entry to record the purchase of materials is:

a. Debit-Purchases Received

Credit-Purchase Orders Outstanding

b. Debit-Materials

Credit-Purchase Orders Outstanding

c. Debit-Purchases Received

Credit-Accounts Payable

d. Debit-Materials

Credit-Accounts Payable

ANSWER: d

RATIONALE: The Materials account is debited and Accounts Payable is credited when materials are purchased. Purchase orders are not recorded in the general ledger.

POINTS: 1

DIFFICULTY: Easy


general ledger




IMA-Cost Management





44. The journal entry to record undamaged direct materials returned to the storeroom would be:

a. Debit - Materials

Credit - Finished Goods

b. Debit - Factory Overhead

Credit - Work in Process

c. Debit - Materials

Credit - Factory Overhead

d. Debit - Materials


ANSWER: d

RATIONALE: The entry to record the return of direct materials to the storeroom is the reverse of the entry that is made when the materials are issued to production.

POINTS: 1



general ledger




IMA-Cost Management



45. If the amount of materials on hand at the end of the period is less than the control account balance, the control account

balance should be decreased by the following entry:

a. Debit - Work in Process

Credit - Materials

b. Debit - Materials

Credit - Factory Overhead

c. Debit - Materials


d. Debit - Factory Overhead

Credit - Materials

ANSWER: d

RATIONALE: If the amount of materials on hand per the physical count is less than the control account balance, the balance should be decreased by a debit to a factory overhead account (usually called Inventory Short and Over), because differences may be due to damage, theft or errors and usually cannot be easily identified with a specific job, and a credit to Materials.

POINTS: 1



general ledger






IMA-Cost Management



46. Inventory levels for firms using JIT inventory systems compared to firms not using JIT will be:

a. Higher for both work in process and finished goods.

b. Higher for work in process and finished goods but lower for raw materials.

c. Lower for raw materials, work in process, and finished goods.

d. Higher for finished goods but lower for raw materials and work in process.

ANSWER: c

RATIONALE: Manufacturers using just-in-time inventory systems will maintain lower inventory levels for all three types of inventories. Materials are delivered in time to be placed in production. Work in Process inventories are minimized by eliminating inventory buffers between work cells and Finished Goods inventories are eliminated because items are produced as customers order them.

POINTS: 1


LEARNING OBJECTIVES: PRIN.EDWA.16.12 - LO4: Account for inventories in a just-in-time (lean production)

system





TOPICS: Just-in-Time Materials Control


47. Just-in-time production techniques:

a. Require inventory buffers between work centers.

b. Were first utilized by U.S. manufacturers and later exported to Japan.

c. Produce goods for inventory with the hope that demand for these goods will then be created.

d. Require a high degree of cooperation and coordination between supplier and manufacturer.

ANSWER: d

RATIONALE: A just-in-time inventory system is a “pull” inventory system ultimately driven by customer demand so goods are not produced in the hope of selling them. In addition, inventory buffers are minimized as production on units in one manufacturing cell is started only when the subsequent operation requests them. For a just-in-time inventory system to be effective, suppliers must be in close proximity to customers to enable the delivery of raw materials to coincide with production's need for them.

POINTS: 1



system









48. In a JIT system, reducing throughput time is possible because:

a. there are fewer materials used in the process.

b. there are more workers involved in the process.

c. there are more supervisors, so a better job is done of directing plant activities.

d. there are fewer operations such as moving and storing inventories that do not add value to the product.

ANSWER: d

RATIONALE: In a JIT system, there are fewer operations such as moving and storing inventories that do not add value to the product.

POINTS: 1



system







49. Polk, Inc. produces 3,000 hammers each day. The average number of units in work in process is 4,500, having an

average cost of $10,000. The annual carrying costs relating to inventory are 15%.

Consultants have determined that the work in process could be reduced by as much as a third by rearranging the factory

floor. What is the current throughput time?

a. Eight hours

b. Sixteen hours

c. One day

d. One and one half days

ANSWER: d

RATIONALE: Throughput is the amount of time it takes a unit to get through the system. The average

number of units in work in process is 4.500. Dividing this number by 3,000 (daily

production) yields a cirrent throughput time of 1.5 days.

POINTS: 1



system







50. Harrison Industries produces 4,000 lunch boxes each day. The average number of units in work in process is 12,000,

having an average cost of $60,000. The annual carrying costs related to inventory are 10%.




floor. What would the throughput time be if Harrison implements the recommended changes?

a. Twelve hours

b. One day

c. Two days

d. Three days

ANSWER: c

RATIONALE: Throughput is the amount of time it takes a unit to get through the system. The current

throughput time is 3 days; this is computed by dividing average work in process by daily

production (12,000 / 4,000). If current throughput time is reduced by 1/3, the new

throughput time is two days.

POINTS: 1



system







51. Taft Company produces 5,000 pallets each day. The average number of units in work in process is 10,000, having an

average cost of $35,000. The annual carrying costs related to inventory are 20%.

Consultants have determined that the work in process could be reduced by as much as 25% by rearranging the factory

floor. What would the throughput time be if Harrison implements the recommended changes?

a. Twelve hours

b. One day

c. One and one-half days

d. Two days

ANSWER: c

RATIONALE: Throughput is the amount of time it takes a unit to get through the system. Units in work in process = 10,000 = 2 days x .25 = 1/2 day reduction Daily production 5,000 Two days less one-half day = one and one-half days

POINTS: 1



system







52. Harrison Industries produces 4,000 lunch boxes each day. The average number of units in work in process is 12,000,

having an average cost of $60,000. The annual carrying costs related to inventory are 10%.




floor. What would the reduction in annual carrying costs be if Harrison is able to implement the recommended changes?

a. $2,000

b. $1,500

c. $6,000

d. $4,000

ANSWER: a

RATIONALE: Carrying cost = Average work in process inventory x carrying cost percentage Existing situation - $60,000 x 10% = $6,000 Inventory reduction $60,000 x 1/3 = $20,000 reduction New average inventory = $60,000 - $20,000 = $40,000 x 10% = $4,000 $6,000 - $4,000 = $2,000 reduction

POINTS: 1



system







53. The accounting system used with JIT manufacturing is called:

a. Backflush costing.

b. The push system.

c. Perpetual inventory costing.

d. First-in, first-out.

ANSWER: a

RATIONALE: The accounting system used with JIT is called backflush costing.

POINTS: 1

DIFFICULTY: Easy


system




IMA-Cost Management



54. In a backflush accounting system, a single account is used for the following:

a. Work in process and finished goods inventories.

b. Finished goods inventories and cost of goods sold.

c. Factory overhead and raw materials.

d. Raw materials and work in process inventories.

ANSWER: d



RATIONALE: In a backflush accounting system, a single account, Raw and In Process is used because in just-in-time or JIT manufacturing, materials are delivered directly into production.

POINTS: 1

DIFFICULTY: Easy


system




IMA-Cost Management



55. In a backflush accounting system, a single account is used for the following:

a. Work in process and finished goods inventories.

b. Finished goods inventories and cost of goods sold.

c. Factory overhead and raw materials.

d. Labor and overhead.

ANSWER: d

RATIONALE: In a backflush accounting system, a single account, Conversion Costs, is used because labor is usually insignificant in a highly automated JIT setting.

POINTS: 1

DIFFICULTY: Easy


system




IMA-Cost Management



56. Which of the following is not true about backflush costing?

a. Different companies may choose different trigger points.

b. Production costs are attached to products as they move through work in process.

c. A single account is used for raw and in-process materials because materials are issued to production when

received from the supplier.

d. Direct labor is usually insignificant in a highly automated system, so is not cost effective to account for it

separately.

ANSWER: b

RATIONALE: In backflush costing, costs are not attached to products until the products are completed and sold.

POINTS: 1



system






IMA-Cost Management



57. Under a backflush accounting system, the following entry is made when products are completed:

a. Debit-Finished Goods

Credit-Work In Process

b. Debit-Cost of Goods Sold

Credit-Raw and In Process

Credit-Conversion Costs

c. Debit-Finished Goods

Credit-Raw and In Process

Credit-Conversion Costs

d. Debit-Cost of Goods Sold

Credit-Finished Goods

ANSWER: c

RATIONALE: Finished goods are debited when goods are completed under backflush accounting, similar to other accounting systems. However, work in process is not credited, as that account does not exist under backflush accounting.

POINTS: 1



system




IMA-Cost Management



58. All of the following methods may be used to account for the revenue from scrap sales except:

a. Credit Factory Overhead, if the scrap cannot be identified with a specific job.

b. Credit Materials, if the scrap would have been able to be recycled.

c. Credit Work in Process, if the scrap is identified with a specific job.

d. Credit Scrap Revenue, which is included in the “Other Income” section of the income statement.

ANSWER: b

RATIONALE: Scrap is a by-product of production. It would not be appropriate to credit materials because materials would have been credited when the materials were put into production. Depending on the circumstances, it would be appropriate to credit Factory Overhead, Work in Process or Scrap Revenue.

POINTS: 1


LEARNING OBJECTIVES: PRIN.EDWA.16.13 - LO5: Account for scrap materials, spoiled goods, and defective

work






IMA-Cost Management

TOPICS: Scrap, Spoiled Goods and Defective Work


59. Rowe Co.'s Job 401 for the manufacture of 2,200 wagons was completed during August at the unit costs presented

below.

Direct materials $24

Direct labor 18

Factory overhead 14

$56

Final inspection of Job 401 disclosed 200 wagons that were sold to a jobber for $6,000.

Assume that the spoilage loss is charged to all production during August. What would be the journal entry to record the

spoilage?

a. Factory Overhead 11,200

Work in Process 11,200

b. Spoiled Goods Inventory 6,000


c. Spoiled Goods Inventory 6,000

Factory Overhead 5,200


d. Spoiled Goods Inventory 11,200


ANSWER: c

RATIONALE: When the spoilage loss is charged to all of production, the market value of the spoiled

goods is charged to Spoiled Goods Inventory, but the cost of the job in work in process is

reduced by the entire cost of the spoiled items. The difference is a loss, which is charged

to Factory Overhead.

Cost of spoiled items (200 x $56) $11,200

Market value of spoiled units 6,000

Amount charged to Factory Overhead $ 5,200

POINTS: 1



work




IMA-Cost Management




below.




Direct labor 18

Factory overhead 14

$56

Final inspection of Job 401 disclosed 200 spoiled wagons that were sold to a jobber for $6,000.

Assume that the spoilage loss is attributable to the exacting specifications of Job 401 and is charged to this specific

job. What would be the journal entry to record the spoilage?

a. Factory Overhead 6,000


b. Spoiled Goods Inventory 6,000


c. Spoiled Goods Inventory 6,000



d. Spoiled Goods Inventory 6,000


ANSWER: b

RATIONALE: When the spoilage loss is charged to the specific job on which the spoilage occurred, the market value of the spoilage is charged to Spoiled Goods Inventory and the cost of the job in work in process is reduced by the same amount.

POINTS: 1



work




IMA-Cost Management




below.


Direct labor 18

Factory overhead 14

$56

Final inspection of Job 401 disclosed 200 spoiled wagons that were sold to a jobber for $6,000.

Assume that spoilage loss is attributable to the exacting specifications of Job 401 and is charged to this specific job. What

would be the unit cost of the good wagons produced on Job 401?

a. $56.00

b. $58.60

c. $53.00

d. $48.18

ANSWER: b



RATIONALE: When the spoilage loss is charged to the specific job on which the spoilage occurred, the cost of producing the good units includes the cost of producing all units less the amount received for the spoilage:

(2,200 x $56) - $6,000 = $58.60

2,000

POINTS: 1



work




IMA-Cost Management



62. During March, Hart Company incurred the following costs on Job 122 for the manufacture of 200 motors:

Original cost accumulation:

Direct materials $2,600

Direct labor 900

Factory overhead 1,350

$4,850

Direct costs of reworking 10 units:

Direct materials $ 100

Direct labor 180

Factory overhead 270

$ 550

Assume the rework costs are to be spread over all jobs that go through the production cycle. What is the journal entry

needed to record the rework costs?

a. Work in Process 550

Materials 100

Payroll 180

Factory Overhead 270

b. Materials 100

Payroll 180


Work in Process 550

c. Factory Overhead 550

Materials 100

Payroll 180


d. Spoiled Goods Inventory 550

Work in Process 550

ANSWER: c

RATIONALE: When the costs of correcting defective work is to be spread over all jobs, the material, labor and factory overhead costs are charged to Factory Overhead.

POINTS: 1





work




IMA-Cost Management



63. During April, Hisch Company incurred the following costs on Job A42 for the manufacture of 400 bookcases:


Direct materials $ 4,200

Direct labor 2,500


$11,500



Direct labor 90


$ 420

If the defects resulted from the exacting specifications of the order, what is the journal entry needed to record the rework

costs?

a. Work in Process 420

Materials 150

Payroll 90


b. Materials 150

Payroll 90


Work in Process 420

c. Factory Overhead 420

Materials 150

Payroll 90


d. Spoiled Goods Inventory 420

Work in Process 420

ANSWER: a

RATIONALE: When the costs of correcting defective work is to due to the exacting specifications of the order, the material, labor and factory overhead costs are charged to that specific job in Work in Process.

POINTS: 1



work






IMA-Cost Management



64. During March, Hart Company incurred the following costs on Job 122 for the manufacture of 200 motors:



Direct labor 900


$4,850



Direct labor 180


$ 550

The rework costs were attributable to the exacting specifications of Job 122, and the full rework costs were charged to this

specific job. What is the cost per finished unit of Job 122?

a. $25.00

b. $23.50

c. $27.00

d. $24.00

ANSWER: c

RATIONALE: Original cost $4,850 Rework materials 100 Rework labor 180 Rework overhead 270 Total cost $5,400 Unit cost ($5,400/200) $27

POINTS: 1



work




IMA-Cost Management



65. Xander Company anticipates that usage of Component T will be 100 units daily, which equates to around 25,000 for

the year. The material is expected to cost $5 per unit. Once an order is placed with its vendor, it takes five days to receive

the goods, and the cost of placing each order is $50. As a result, Xander keeps 1,000 units on hand to avoid

stockouts. The carrying cost associated with each unit is $10.

a. Compute the order point.

b. Determine the most economical order quantity.

ANSWER:



(a) Order point = Expected usage during lead time + Safety stock

= (100 units × 5 days) + 1,000

= 1,500 units

(b)

POINTS: 1









66. The Reddog Company predicts that 3,200 units of material will be used during the year. The expected daily usage is

15 units, there is an expected lead time of 10 days, and there is a safety stock of 200 units. The material is expected to

cost $4 per unit. It is estimated that it will cost $25 to place each order. The annual carrying cost is $1 per unit.

a. Compute the order point.

b. Determine the most economical order quantity by use of the formula.

c. Compute the total cost of ordering and carrying at the EOQ point.

ANSWER:

(a) Order point = Expected usage during lead time + Safety stock

= (15 units × 10 days) + 200

= 350 units

(b)

(c) Annual

ordering cost =

Number of orders ×

Cost per order

= 3,200 Annual usage × $25

400 EOQ

= 8 × $25 = $200

Annual carrying cost = Average inventory ×

Carrying cost per unit



Average

inventory = (1/2 × EOQ) +

Safety

Stock

= (1/2 × 400) + 200 = 400

Annual

carrying cost = 400 × $1.00 = $400

POINTS: 1









67. For the following materials control forms, please indicate the following:

a. who prepares the form;

b. who receives the form; and

c. the form’s intended purpose.

1. Purchase Requisition

2. Materials Requisition

3. Receiving Report

4. Purchase Order

5. Debit/Credit Memo

ANSWER:

Materials Control

Form

Preparer

Receiver

Purpose

Purchase requisition

Storeroom keeper

Purchasing agent

Notify purchasing

agent that additional

materials are needed.

Materials requisition

Production

department supervisor

Storeroom keeper

To issue materials to

the factory department

for production

Receiving report

Receiving clerk

Purchasing agent

To compare the

vendor invoice and

purchase order to

make sure materials

ordered were received

Storeroom clerk

To ensure all

materials are received

in the storeroom

Purchase order

Purchasing agent

Vendor (supplier)

Describes materials

wanted, stating price

and fixing delivery



details

Debit/Credit memo

Purchasing agent

Vendor (supplier)

To notify vendor of

discrepancies in

shipments

POINTS: 1






IMA-Cost Management



68. The materials account of the Lankford Company reflected the following changes during January:

Balance, January 1 190 units @ $30

Received, January 5 130 units @ $32

Issued, January 18 240 units

Received, January 20 210 units @ $35

Issued, January 30 70 units

Assuming that Lankford Company maintains perpetual inventory records, calculate the cost of the ending inventory at

January 31 and the cost of the units issued in January using the FIFO method.

ANSWER:

Received Issued Balance

Date

Quantity

Unit

Price

Amount

Quantity

Unit

Price

Amount

Quantity

Unit

Price

Amount

1/1 190 30 5,700

1/5 130 32 4,160 190 30

130 32 9,860

1/18 190 30 5,700

50 32 1,600 80 32 2,560

1/20 210 35 7,350 80 32

210 35 7,350

1/30 70 32 2,240 10 32

210 35 7,670

Ending Inventory:

220 units having a total cost of 7,670 (10 units x $32) + (210 units x $210)

Cost of Units Issued:

310 units having a total cost of $9,540 (5,700 + 1,600 + 2,240)

POINTS: 1



general ledger






IMA-Cost Management



69. The materials account of Hetzer Industries reflected the following changes during May :

Balance, May 1 180 units @ $30

Received, May 2 60 units @ $32

Issued, May 4 80 units



Assuming that Hetzer maintains perpetual inventory records, calculate the cost of the ending inventory at May 31 and the

cost of the units issued in May using the LIFO method.

ANSWER:


Date

Quantity

Unit

Price

Amount

Quantity Unit Price

Amount

Quantity

Unit

Price

Amount

5/1 180 30 5,400

5/2 60 32 1,920 180 30

60 32 7,320

5/4 20 30 600

60 32 1,920 160 30 4,800

5/27 100 34 3,400 160 30

100 34 8,200

5/31 50 30 1,500

100 34 3,400 110 30 3,300

Ending Inventory:

110 units having a total cost of $3,300 (110 x $30)


230 units having a total cost of $7,420 (600 + 1,920 + 1,500 + 3,400)

POINTS: 1



general ledger




IMA-Cost Management



70. The materials account of the Herbert Company reflected the following changes during August:

Balance, August 1 18 units @ $200

Received, August 2 6 units @ $210

Issued, August 8 8 units



Received, August 15 10 units @ $222

Issued, August 27 15 units

Assuming that Herbert Company maintains perpetual inventory records, calculate the cost of the ending inventory at

August 31 and the cost of the units issued in August using the moving average method.

ANSWER:


Date

Quantity Unit Price

Amount

Quantity Unit Price

Amount

Quantity Unit Price

Amount

8/1 18 $200.00 $3,600

8/2 6 $210.00 $1,260 24 202.50 4,860

8/8 8 $202.50 1,620 16 202.50 3,240

8/15 10 $222.00 $2,220 26 210.00 5,460

8/27 15 $210.00 3,150 11 210.00 2,310

Ending Inventory:

11 units having a total cost of $2,310


23 units having a total cost of $4,770 (1,620 + 3,150)

Unit cost calculations:

$4,860 / 24 = $202.50

$5,460 / 26 = $210.00

POINTS: 1



general ledger




IMA-Cost Management



71. The materials account of the Flynn Company reflected the following changes during May:

Balance, May 1 500 units @ $10





Assuming that Flynn Company maintains perpetual inventory records, calculate the ending inventory at May 31 and the

cost of the units issued in May using each of the following methods:

(a) First in, first out (FIFO)

(b) Last in, first out (LIFO)

(c) Moving average

ANSWER: (a) FIFO:


Date

Quantity

Unit

Price

Amount

Quantity

Unit

Price

Amount

Quantity

Unit

Price

Amount

5/1 500 $10 $5,000



5/5 300 $12 $3,600 500 10

300 12 8,600

5/10 400 $10 $4,000 100 10

300 12 4,600

5/15 200 15 3,000 100 10

300 12

200 15 7,600

5/25 100 10 1,000

200 12 2,400 100 12

200 15 4,200

Ending Inventory:

300 units having a total cost of $4,200 (100 units x $12) + (15 units x $15)


700 units having a total cost of $7,400 (4,000 + 1,000 + 2,400)

(b) LIFO:


Date

Quantity

Unit

Price

Amount

Quantity Unit Price

Amount

Quantity

Unit

Price

Amount

5/1 500 10 5,000

5/5 300 12 3,600 500 10

300 12 8,600

5/10 100 10 1,000

300 12 3,600 400 10 4,000

5/15 200 15 3,000 400 10

200 15 7,000

5/25 100 10 1,000

200 15 3,000 300 10 3,000

Ending Inventory:

300 units having a total cost of $3,000 (300 x $10)


700 units having a total cost of $8,600 (1,000 + 3,600 + 1,000 + 3,000)

(b) Moving Average:


Date

Quantity

Unit

Price

Amount

Quantity Unit Price

Amount

Quantity

Unit

Price

Amount

5/1 500 10 5,000

5/5 300 12 3,600 800 10.75 8,600

5/10 400 10.75 4,300 400 10.75 4,300

5/15 200 15 3,000 600 12.17 7,300

5/25 300 12.17 3,650 300 12.17 3,650

Ending Inventory:

300 units having a total cost of $3,650


700 units having a total cost of $7,950 (4,300 + 3,650)

Unit cost calculations:



$8,600 / 800 = $10.75

$7,300 / 600 = $12.16667

POINTS: 1



general ledger




IMA-Cost Management



72. The following accounts are maintained by the Sprague Manufacturing Company in its general ledger: Materials,

Work in Process, Factory Overhead, and Accounts Payable. The materials account had a debit balance of $40,000 on

November 1. A summary of material transactions for November shows:

(1) Materials purchased on account, $62,000

(2) Direct materials issued, $58,500

(3) Direct materials returned to storeroom, $1,200

(4) Indirect materials issued, $3,600

(5) Indirect materials returned to storeroom, $550

(6) Materials on hand were $200 less than the stores ledger balance

a. Prepare journal entries to record the materials transactions.

b. Post the journal entries to T-accounts.

c. What is the balance of the materials account on November 30?

ANSWER:

(a) (1) Materials 62,000

Accounts Payable 62,000

(2) Work in Process 58,500

Materials 58,500

(3) Materials 1,200


(4) Factory Overhead 3,600

Materials 3,600

(5) Materials 550


(6) Factory Overhead 200

Materials 200

(b)

Materials Accounts

Payable

Bal. 40,000 | (2) 58,500 | (1) 62,000

(1) 62,000 | (4) 3,600

(3) 1,200 | (6) 200

(5) 550 |



103,750 | 62,300

Work in Process Factory Overhead

(2) 58,500 | (3) 1,200 (4) 3,600 | (5) 550

(6) 200 |

(c) The balance of the materials account = $103,750 - $62,300

= $ 41,450

POINTS: 1



general ledger




IMA-Cost Management



73. The following decisions and transactions were made for the Sanders Company in May:

May 1 The production manager informed the storeroom keeper that the forecasted usage of Component X is 3,000

units. There are 1,500 units on hand, each having a unit cost of $20. The company maintains a minimum stock of 1,000

units. The storeroom keeper notifies the purchasing agent that the company will need 2,500 units of X to meet May’s

production needs and maintain a minimum inventory of 1,200 units.

May 3 The purchasing agent checks with a number of vendors and orders 2,500 units of Component X. Unfortunately,

the price has gone up to $25.

May 7 The shipment of Component X is received and inspected. The units are in good condition and the company

received the number of units it ordered.

May 9 The invoice covering Component X is received from the vendor and approved for payment.

May 21 The May 9 invoice is paid in full.

May 31 During the month, 2,950 units of Component X are issued to production. The company uses FIFO costing and a

job order cost system.

May 31 An inventory of the storeroom is taken at the end of the day and there are 1,040 units of Component X on hand.

(a) Prepare a table to answer the following questions:

(1) What forms, if any, were used?

(2) What entry, if any, was recorded?

(b) Calculate the balance in the Materials account at May 31.

ANSWER:

Date Form Account Debit Credit

May 1 Purchase requisition No entry

May 3 Purchase order No entry

May 7 Receiving report No entry



May 9 None Materials 62,500


May 21 Approved voucher Accounts Payable * 62,500

Cash 62,500

May 31 Materials requisition Work in Process ** 66,250

Materials 66,250

May 31 Inventory report Factory Overhead *** 250

Materials 250

* 2,500 units x $25 = $62,500

** FIFO Basis:

Beginning Inventory 1,500 units @ $20 $30,000

Received 2,500 units @ $25 62,500

Total available 4,000 units 92,500

Issued (2,950 units) (1,500) units @ $20 (30,000)

(1,450) units @ $25 (36,250)

Per perpetual records @ 5/31 1,050 units @ $25 26,250

Per physical inventory @ 5/31 1,040 units

Inventory adjustment needed 10 units @ $25

** (1,500 x $20) + (1,450 x $25) = $66,250

*** 10 x $25 = $250

(b) Units in inventory at May 31 = 1,040 units @ $25 = $26,000 per above

POINTS: 1



PRIN.EDWA.16.11 - LO3: Account for materials and relate materials accounting to the

general ledger




IMA-Cost Management


Accounting for Materials


74. The Outdoor Manufacturing Company produces sporting equipment. The company maintains a single raw materials

inventory account for both direct and indirect materials. The following information came from the factory ledger

accounts for December:

Raw Materials, December 1 $ 45,500

Work in Process, December 1 125,000

Finished Goods, December 1 175,000

Raw materials purchases (during December) 623,000

Direct labor 435,000

Repairs and maintenance 37,200

Indirect materials 16,700

Utilities 63,200



Indirect labor 38,200

Supervisors' salaries 18,300

Raw Materials, December 31 43,600

Work in Process, December 31 135,000

Finished Goods, December 31 150,000

Compute the cost of direct materials used during the month of December.

ANSWER:

Raw materials inventory, December 1 $ 45,500

Raw materials purchases 623,000

Total materials available $668,500

Less: Raw materials inventory, December 31 43,600

Raw materials used $624,900

Less: Indirect materials used 16,700

Direct materials used $608,200

Instructor Note: This question relates concepts from chapter 2 to those learned in chapter

1.

POINTS: 1



general ledger




IMA-Cost Management


OTHER: Bloom's: Creating

75. Skeeter Company produces 100,000 insect repellent devices each day, and the average number of units in work in

process is 150,000, with an average value of $300,000. The average annual carrying cost percentage is 30%.

a. Determine the throughput time.

b. Compute the annual carrying cost.

c. If the same daily output can be achieved while reducing the work in process by 40%, determine the new throughput

time.

d. Compute the annual carrying cost given the information in requirement c.

ANSWER: a. 150,000 / 100,000 = 1.5 days

b. $300,000 x 30% = $90,000

c. 150,000 x 40% = 60,000 unit reduction

(150,000 - 60,000) / 100,000 = .9 days

d. 30% carrying cost x ((1-.4) x $90,000) = $16,200

POINTS: 1



system









76. Omari Assembly, Inc., which uses backflush costing, had the following transactions during the month of October :

(a) Purchased raw materials on account, $700,000.

(b) Requisitioned raw materials to production, $700,000.

(c) Distributed direct labor costs, $105,000.

(d) Manufacturing overhead incurred, $215,000. (Use Various Credits for the account

in the credit part of the entry.)

(e) Completed all goods.

(f) Sold goods for $1,500,000 on account.

Prepare journal entries to record the above transactions.

ANSWER:

(a) Raw and In-Process 700,000


(b) No entry

(c) Conversion Costs 105,000

Payroll 105,000

(d) Conversion Costs 215,000

Various Credits 215,000

(e) Finished Goods 1,020,000

Raw and In-Process 1,020,000

(f) Accounts Receivable 1,500,000

Sales 1,500,000

Cost of Goods Sold 1,020,000

Finished Goods 1,020,000

POINTS: 1



system




IMA-Cost Management



77. Gilday Furniture Inc. produces custom furniture. Wood chips are an inevitable by-product of the cutting process, and

are considered scrap. Gilday is unable to use this scrap; however, the company has an agreement to sell the scrap at

market prices to a local company that processes the wood chips to make industrial fillers.

Record the entries required for scrap under each of the following conditions:

(a) The revenue received for scrap is to be treated as other income. The market value of wood chips is stable and is

currently $200 per ton. The company has seven tons on hand.



(b) The revenue received for scrap is to be treated as a reduction in manufacturing cost, but cannot be identified with a

specific job. A firm price is not determinable for the scrap until it is sold. It is eventually sold for cash of $800.

(c) The revenue received for scrap is to be treated as a reduction in manufacturing cost, and five tons of scrap are related

to a special job where the company made numerous round tables. The market value of wood chips is stable and is

currently $200 per ton.

ANSWER: (a) Scrap Materials 1,400

Scrap Revenue 1,400

Cash (or Accounts Receivable) 1,400

Scrap Materials 1,400

(b) Cash (or Accounts Receivable) 800


(c) Scrap Materials 1,000


Cash (or Accounts Receivable) 1,000

Scrap Materials 1,000

POINTS: 1



work




IMA-Cost Management



78. Moreland Corporation manufactures bells and whistles. In June, 6,000 bells were completed on Job Order No.

BX46. On final inspection, 400 bells were rejected and transferred to the spoiled goods inventory to be sold at $.50 each.

Costs recorded on Job Order No. BX46 follow:


Direct labor 2,100


Prepare the journal entries to record the following:

a. Charges for materials, labor, and factory overhead for Job Order No. BX46

b. Cost of the spoiled work, the transfer of the cost of the good toys to Finished Goods,

and the sale of the imperfect toys, if the loss on spoilage is charged to all jobs

worked on during the period

c. Cost of the spoiled work, the transfer of the cost of the good bells to Finished Goods,

and the sale of the imperfect ones, if the loss on spoilage is to be charged to Job

Order No. BX46 only. (Round the new unit cost to the nearest whole cent, and

assume part b, above, has not occurred.)

ANSWER:

(a) Work in Process 5,700



Materials 2,400

Payroll (direct labor) 2,100


(b) Spoiled Goods (400 × $.50) 200


Work in Process (400 × $.95*) 380

Finished Goods ((6,000 - 400) × $.95) 5,320


Cash 200

Spoiled Goods 200

(c) Spoiled Goods 200

Work in Process 200

Finished Goods (5,600 × $.98*) 5,488


Cash 200

Spoiled Goods 200

* Cost per unit $5,700 / 6,000 = $.95

** $5,700 - $200 = $.9821 rounded

5,600

POINTS: 1



work




IMA-Cost Management



79. Kami company manufactures engine components. During the previous month, the Company manufactured 12,000

units of Component XRB for Job 3524 and incurred the following unit costs:

Direct materials $32.00

Direct labor 9.00

Factory overhead 6.00

When the units were tested after production, 300 units did not meet specifications and needed further polishing work. The

unit cost of correcting the defects was:

Direct labor 3.00

Factory overhead 2.00

a. Prepare the journal entries to record the cost to correct the defective work under each of the following scenarios:

1. If the cost of correcting the defective work is spread over all jobs that go through the

production cycle



2. If the defects resulted from the exacting specifications of Job 3524

b. Under Scenario 2 above, calculate the cost per unit of Job 3524.

ANSWER: (a.)

(1.) Factory Overhead (($3.00 + 2.00) x 300) 1,500

Payroll (direct labor) ($3.00 x 300) 900

Factory Overhead ($2.00 x 300) 600

(2.) Work in Process (Job 3524) 1,500

Payroll 900


(b.)

Number of units produced 12,000

Original cost per unit ($32.00 + 9.00 + 6.00) $ 47.00

Total original cost $564,000

Plus cost of correcting defective work 1,500

Total cost of Job 3524 $565,500

Cost per unit of Job 3524 ($565,500 / 12,000) $ 47.125

POINTS: 1



work




IMA-Cost Management



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